Air freight is the preferred mode of transport for the new global economy’s high value-to-weight manufactured goods, such as microelectronics, pharmaceuticals, and medical devices. According to a study by Aviation Benefits, the electronics industry accounts for around 40 per cent of the value of the entire international air cargo industry.

For the economies of Asia, where there is relatively little cross-border land transport compared to the West, air cargo is a vital bridge to the global market. While countries such as Malaysia, China and Singapore have excellent ocean access to busy shipping routes, they are also heavily dependent on air freight. Sending their goods to North America and Europe can take only 24 hours – by ship, this would take up to 30 days. It may cost seven times more to carry goods by air than by sea, but when the cargo comprises time-sensitive products that rapidly suffer from obsolescence, such as computers and mobile phones, these goods have a relatively short marketing life and each day counts.

This is why Mr Mark Whitehead, Chief Executive of Hong Kong Air Cargo Terminals Limited (Hactl), is confident of the air freight industry, with the company recently signing a new 10-year extension deal with Hong Kong’s Airport Authority.

In this Supply Chain Asia issue, Mr Whitehead shares his thoughts of the industry in Hong Kong, and beyond.

Many reports indicate air freight’s share of the total market continues to slip. Do you see this trend changing anytime soon? Is this trend unanimous across the globe?

The relatively higher cost of air freight means that freight defaults to ocean when it makes economic sense; this is nothing new. Air freight is often used for initial time-critical stocking of new product launches, with ocean used for larger follow-up volumes.

Air freight still accounts for 35 per cent of all global trade by value, and hopefully this will continue. Air freight is used whenever goods are urgent, high-value or where the exporter wants to reduce inventory financing costs through air freight’s much shorter transit times.

At the moment, we see no modal shift in Hong Kong, beyond the evolutionary shift that has always taken place as product markets mature.

Currently, air freight is strongly driven by pharma and life sciences sectors. In your opinion, what can the air freight industry do to make it more attractive to other sectors?

Air freight needs to continue to provide efficiency, in terms of transit times, as well as reliability when it comes to transparency and safety of delivery. There are certain products which suit air freight and others which are equally suitable to air freight and shipping and the choice is driven by the market forces prevalent at the time.

How is Hong Kong taking advantage of the opportunities that cross-border e-commerce brings?

Hong Kong has a significant role to play in e-commerce for the Chinese market. The Chinese consumer’s growing desire for overseas sources of luxury goods, healthcare products and even foodstuffs demands the spread and frequency of air freight services from global markets that Hong Kong can deliver.

As China’s inbound e-commerce grows, and increased competition drives savings in distribution costs, fulfilment is starting to move closer to the market to leverage economies of scale. This is an opportunity for Hactl’s added-value logistics arm, Hacis, which is opening new depots in China fed by express, bonded road feeders – to provide fast and cost-efficient links between Hong Kong and the new generation of e-commerce fulfilment centres.

What do you think of the current economic developments in Southeast Asia? How do they affect Hactl’s operations and strategic planning?

For emerging economies like Vietnam and Myanmar, I expect that there will be inflows of machinery and technology to build the industry, leading to an increase in industrial production, followed by increase in employment and wealth, then ultimately to an increase in imports to satisfy new consumers’ appetite for goods that may not be available locally. It seems likely, as a by-product of this process and the building of new infrastructure, that we will see a shift towards increased intra- Asian trading. We believe, however, that our cargo volumes will continue to rise, that Hong Kong will retain its standing as a major air freight hub.

Hactl has passed its first World Health Organization Good Distribution Practices (GDP) annual surveillance audit.What does this mean to Hactl and to the air freight industry in the region?

GDP is the most widely-accepted credential for pharma and lifescience shipping, which in turn is an important growth sector for the air freight industry. Achieving this standard proves that Hactl cares about providing the best possible service to the highest recognised standards, and it opens up opportunities for our carrier customers to compete locally for this traffic, to use Hong Kong as a GDP gateway to China, and to use Hactl and Hong Kong as a staging post in a regional or global GDP network.

Reports have shown that Hactl is working on a cost-effective inland distribution to stay ahead of its competitors. Can you share with us more about this plan?

Details of our plans are commerciallysensitive, but it is no secret that Hacis (our logistics arm) will continue to grow its highly-successful inland distribution operations through increased capacity, expanded road route network, the opening of more IATA-coded inland cargo depots in China, and the launch of multi-modal services.

In one of the previous reports, you have highlighted the importance of the third runway project to Hong Kong’s future as a major hub. Why is it so? What other improvements must be made to the airport’s infrastructure?

Hong Kong International Airport will at some point reach its operating capacity. After that, any current airline wanting increased frequencies, or any new operator wishing to serve this region, will be constrained. Airlines prefer not to split their operations; if they cannot expand, they are likely to relocate.

Hong Kong has a small market of its own; our success depends on providing an efficient transit point for passengers or cargo arriving from or travelling to points other than Hong Kong. The third runway in Hong Kong is essential to meet the future growth of airlines for both passenger and air cargo.

Does Hactl now carry out 100 per cent X-ray screening of all freight? If yes, how has it impacted your operations? Is the technology available sophisticated enough to ensure high efficiency and low waiting time?

Hactl constantly monitors the evolution of technology and invests in upgrades wherever possible, consistent with maintaining full compliance with current and anticipated regulation. We also review processes to ensure maximum efficiency, as part of our continuous improvement programme. At this time, Hong Kong does not require 100 per cent screening of air cargo.

Hactl has recently signed a new 10-year extension deal with Hong Kong’s Airport Authority. In your opinion, how different will the challenges of the upcoming 10 years be compared to the previous decade?

The air cargo business is extremely dynamic and has been developed over 40 years by a wide range of entrepreneurial individual. Logistics in Hong Kong will continue to be a growth business. No one has a crystal ball, but history shows that entrepreneurialism pays. The third runway will be developed and will allow air cargo to prosper as an important industry in Hong Kong and Southern China.

In your opinion, what is the most exciting thing about working in the air cargo industry?

It is all about the dynamic business. Being in this industry ensures that each day is different. Not only does this lead to enjoying different experiences, but also meeting different and captivating people in the industry.